The Government’s and HMRC’s handling of the process to reform the non-domicile tax rules has raised serious concerns amongst affected individuals and their advisers, and consideration needs to be given on how future tax policy should be implemented.
The Government introduced widespread changes to the non-domicile regime in 2008, with an understanding that there would be no substantive changes thereafter. Since 2008, there were almost annual changes to the rules which naturally led to uncertainty and a lack of consistency.
At the time of 2014 Autumn Statement, the Government stated “we recognise the significant contribution that non-UK domiciled individuals make in the UK, creating jobs and inward investment. That is why we stand firmly behind the remittance basis of taxation, which is a unique way of taxing people. With the changes announced at Autumn Statement 2014, the UK will continue to offer a very competitive tax regime, allowing people who are not domiciled here to base themselves in the UK for a long time whilst maintaining a different tax status.”
Just over 6 months later, following Labour’s vow during the General Election to abolish the non-domicile regime completely, the 2015 Summer Budget announced major changes to the regime that would take effect from 6 April 2017. Whilst that timeframe suggested a suitable period to devise a set of rules which could be fit for a generation, the consultation process, drafting of legislation and lack of clarity along the way has left professionals and their clients frustrated.
The first consultation was published on 30 September 2015, but only offered stakeholders 6 weeks to contribute, which was much criticised at the time. In addition, a number of the interacting changes regarding offshore trusts were not even mentioned in that consultation.
Despite only offering stakeholders 6 weeks to contribute to the consultation, it took the Government and HMRC some 10 months to provide their response (at the end of August 2016) with little communication in between. The consultation reply offered a further consultation, this time containing much of the detail that should have been contained in the first consultation round. The economic, political and social climate was very different in August 2016 with Britain’s unexpected decision to leave the European Union only a few months earlier. Stakeholders proposed that ‘Brexit’ offered the Government the ideal opportunity to postpone the changes (at least until 5 April 2018) and extend the consultation period, but that suggestion was dismissed.
The draft legislation and final consultation response would not be published until 5 December 2016, and even then, part of the draft legislation was still missing (only becoming available towards the end of January 2017). In the months following, key terms were revised (such as extending the April 2017 rebasing to non-reporting funds) and fundamental aspects of the legislation added to or removed completely. The Finance Bill 2017 published on 20 March 2017 completely removed a number of specific anti-avoidance provisions, with HMRC stating in a follow-up technical note that “it has not been possible to make all of these changes in time and consequently, the Government has taken the view to defer publication of the provisions affected.”
To describe the overall process as ‘painful’ would be understatement. It has left many affected non-domiciled individuals frustrated, with some already having made the move to leave the UK. It was disappointing that the Government and HMRC did not take the brave decision to delay the changes until 5 April 2018, especially in light of the very different political and economic landscape from when the changes were first announced. Whilst the final legislation accommodated some of the offered suggestions, key individuals are left wondering whether the Government has missed an opportunity, and how long it will be before the rules are changed again.
For more information, please contact Nimesh Shah.